Culture Drives Performance: Now There's Proof

When John Graham talks about the importance of corporate culture, he does so with an authority that comes from building what is probably the most consistently successful public relations firm of the past decade, Fleishman-Hillard.

When John Graham talks about the importance of corporate culture, he does so with an authority that comes from building what is probably the most consistently successful public relations firm of the past decade, Fleishman-Hillard. And he does so with support from new data provided by David Maister, the nation’s most authoritative expert on managing professional services firms.

In a speech to the Conference Board last week, Graham discussed his firm’s success over the past decade, and the role its culture and its values have played in that success, and he discussed research presented by Maister in his latest book, Practice What You Preach, which claims to demonstrate a cause-and-effect relationship between a culture that puts people first and superior financial performance.

“Fleishman-Hillard has enjoyed tremendous growth over the years, and people often ask me what I attribute that to,” said Graham. “My answer is always the same: It’s the values we instill and encourage in our people. It’s the approach we bring to serving clients. In other words, it’s our culture.

“And when asked what I worry about most, what keeps me up at night, it’s not the slow down in the economy, it’s not getting new clients. What I worry about most is maintaining and nourishing our culture as we continue a rapid worldwide expansion. If we can continue to maintain and grow our culture, the rest will be easy.”

Graham is not the only big agency CEO to emphasize the importance of culture; in fact, it’s a concept that every agency, big and small, pays lip service to. Talking the talk is easy, but only a handful of firms walk the walk: and if Maister’s research is to be believed, that handful earns a significant competitive advantage as a result—one that is reflected in profit margins that exceed the market average by as much as 100 percent.

According to Maister, “The most financially successful businesses do better than the rest on virtually every aspect of employee attitudes, and those that do best on employee attitudes are invariably more profitable. What is even more powerful… it is attitudes that drive financial results and not the other way around.”

Conventional wisdom, Maister acknowledges, is that great client service is the key to running a successful professional service firm (or a successful service department within a major corporation). That wisdom is not wrong, he says, but it ignores the fact that great client service is itself a product of other factors, and that the most important of those factors is an energized workforce.

Maister surveyed employees of 139 offices in 29 firms all owned by the same publicly held marketing communications company. (He doesn’t identify the company, but Graham’s enthusiasm for the findings reinforces the suspicion that it’s Omnicom.) Working with more than 5,500 responses, Maister used techniques such as factor analysis and stepwise regression analysis to determine relationships between the responses and the financial success of the offices in question, but also to determine which was cause and which was effect.

Graham understands the difficulty of attempting to define culture and quantify its impact on performance. “The major problem with the term culture is that it is difficult to talk about,” he says. “You can’t touch it. You can’t see it. You can’t put it in your briefcase, or download it to your laptop. In that sense, it’s kind of like religion. It’s an article of faith that the employees share when they truly believe in it. But it is real. Clients know when an agency has it.”

“Every company has a culture,” says Graham. “Everyone has a way of doing things, a view of the world they operate in, and expectations for how its employees should approach their work. But too many have a culture of failure. They have a culture that does not inspire employees to do the best work they can do and it comes through in subtle and sometimes not so subtle ways.”

Graham understands that what has worked for Fleishman-Hillard—or at least the specifics of its culture—will not work for everyone.

“No one has a monopoly on culture,” says Graham. “That means any company willing to put in the time, the resources and the work, can create and foster a healthy culture for themselves. It also means that there is no single ‘right way’ to develop and instill a culture of success. By definition, every company’s culture is its own. Each must do what’s right for its employees and customers. But there are certain hallmarks shared by cultures of success.”

F-H has put down on paper the key beliefs that underpin its culture. They run the gamut, touching on issues such as teamwork, ethics, and profitability, but they are summed up by a line the firm has used in its marketing materials for more than a decade, a statement of ambition: “To make ourselves as valuable to our clients as they are to us.”

“We committed those values to paper 15 years ago because we were at that time growing so fast and adding so many people that I was concerned that we would lose the basic values that had made us successful,” says Graham, whose agency has been growing even more rapidly in recent years—more than tripling in size since 1996, and up another 60 percent last year, closing out 2000 with worldwide revenues of $340 million.

“We did not realize at that time was how fast we would grow and expand in the years ahead,” Graham admits. “But the interesting thing is that these values are still as meaningful today as they were 15 years ago when we first committed them to writing. They are timeless.”

According to Graham, “We don’t have a culture because we wrote it down. We developed a culture of success first, and then captured it on paper. There is a big difference. Culture isn’t manufactured, it’s discovered.”

The first key to a culture of success is that the organization “must be inspirational, and intolerant at the same time,” Graham believes.

“A culture of success appeals to employees’ aspirations to do the best work, to be the best in their profession, to set the standard. Everyone wants to be associated with excellence and we want the challenge of gaining that exclusive reputation. Employees want to work for the company that is widely acknowledged to be the best.

“But hand in hand with inspiration is a level of intolerance that the organization must assert to be credible. You cannot tell a person that the company is committed to being the best without underscoring the things the company cannot allow.”

New employee orientations at Fleishman-Hillard emphasize the fact that to be successful at the firm, employees need to adhere to the F-H values on a daily basis. Says Graham, “If our basic values are not consistent with the way you approach your work, even if you are really good at your profession and even if you are really a big star, you should probably leave and look for another job because you will not be successful here.

“We go to great lengths to make sure any new hire of ours is a good fit, professionally and culturally,” says Graham. “But there have been instances where the fit was not right. When that starts to show up, we do not hesitate to make changes.”

“The same thing applies in terms of clients that we may or may not accept. We have turned down clients because something just didn’t feel right. More to the point, we have ended relationships with clients when we thought the relationship was harmful to our culture. That’s not an easy thing to do. But it is the right thing to do.”

Maister reinforces the idea that standards must be tough in Practice What You Preach. The best firms, he says, “do not say, gently, ‘we encourage teamwork.’ They say things like ‘we have no room’ for individualists. The message is that managers must have the guts and courage to enforce the standards they frequently preach.”

The second key to a culture of success is motivation, says Graham. “Setting the bar high in terms of excellence is one thing. It’s another thing entirely to motivate people to achieve that goal.”

But that’s another aspect of culture that’s easier to talk about than to implement effectively. Graham points to a recent USA Today article that appeared under the headline, “Firms spend billions to fire up workers—with little luck,” and discussed the kind of motivational consultant who urges employees to walk across hot coals in their bare feet.

“If it helps, then I say go for it,” Graham says. “Use any tool or technique that works for you. But I believe that the best-motivated employee is the one who brings a desire to succeed to the office on her own. He or she must already want to do an outstanding job, and no amount of falling back off a ladder into his or her colleagues’ arms will change it.”

The management challenge therefore is twofold: to hire people who are motivated to achieve excellence, and to make sure that personal motivation is not diminished.

The manner in which companies ensure that motivation levels are high varies dramatically, but in-depth interviews conducted by Maister in conjunction with his statistical analysis indicate that little things can make an enormous difference. At one high performance office, for example, he found “the fun stuff is real and pervasive: book clubs, have a giggle, theme-decorated meetings. And notice, it’s not just fin periodically at the annual retreat or office meeting. It’s fun embedded in how they conduct their business.”

At another office, “You can’t miss the references to fun…. How many managers go out of their way to create (and explicitly manage) a fun environment?”

In all of the high-performance offices studied for Practice What You Preach, Maister found the same sense of “being in this together,” of people united for a common purpose. In each case, he concluded, managers had set out to create a sense of community.

“This is not just about teamwork, or collaborating on assignments when necessary,” Maister says. “It goes far beyond that in the most profitable places. We’re talking about true communities where people feel a mutual sense of responsibility and obligation to support each other, and each accepts his or her fair share of the responsibility for the joint challenges the enterprise faces. It’s rare, and it’s powerful stuff to behold.”

Graham understands the importance of community. “Not only do people want to be associated with the best, but we want to be part of something larger than ourselves. That desire isn’t satisfied by being one of 50,000 employees. It’s satisfied by being part of a team. What makes a group of people a community or a team? Open communication; an opportunity for input and to influence decisions; and personal knowledge of others in the group.”

Graham’s third key to a culture of success, and the one that probably distinguishes truly effective cultures from the rest, is that it must be verifiable.

“I am not talking about the words we put on paper or the pages on our intranet sites to describe our culture,” says Graham. “I am talking about delivering on the promise for your employees, about answering your employees’ ‘big if’ questions: ‘If I accept that we are the best, if I give you my best effort to reach that goal, if I motivate myself to achieve that goal, will I be rewarded?’

“At Fleishman-Hillard, as we have gone through a long period of accelerated growth, we have always been careful to spell out for employees what growth means to them personally: opportunities to work on interesting and blue-chip clients, a chance to manage groups of people, the reward of seeing a new product idea receive the financial support it needs to flourish, and of course the financial rewards.”

“If the corporate culture is going to mean anything at all, people must believe that it will produce as intended. Results must be rewarded. People must be developed. The workplace must be energized.”

“This means making some hard decisions to protect the integrity of the culture. Not only should positive results be rewarded, but unacceptable results must be dealt with as well. The fastest way to drain a top performer’s motivation is to advance the career of someone else who is not pulling his or her weight. We are all concerned about turnover. But some turnover is not bad. Your people quickly finger the people who are not a good cultural fit for your organization. Maintain credibility as managers by taking swift and decisive action on the square pegs in the round holes.”

“Leadership behavior is key in sustaining a successful culture,” Graham says. “The CEO and the management group of any organization must live and breathe the culture if the company is to be successful on a long-term basis.”

At Fleishman-Hillard, management efforts are supplemented by task force responsible for ensuring consistency of culture. The firm also maximizes the value of its Intranet site, creating a place where employees can get the latest news and information about the company. Other firms take different approaches. One of the officers Maister studies in Practice What You Preach appointed a “cultural ombudsman,” another has a “culture cop” whose role is “to keep management honest.”

And every two years, F-H brings together every single account professional from around the global FH system for a three day meeting that provides a review of the firm’s performance and recognizes individuals in each office who exemplify the firm’s values.

Maister’s research indicates that the most financially successful offices consistently outperform the rest in seven areas: management listens, management values input, management is trusted, managers are good coaches, management communication is good, managers practice what they preach, and people treat each other with respect.

“All seven of these items have to do with the behavior of individual managers, rather than corporate policies,” he points out.

So finding the right managers is clearly the biggest challenge for firms that hope to develop high performance cultures. Says Maister, “Success comes not from specific tactics, but from the mind-set, worldview, and belief system that lies behind them. This is not necessarily a pleasant message. Tactics you can adopt, change, put on and take off. But a philosophy? You either believe this stuff or you don’t. Or, more importantly, either your people believe that you believe this stuff or they don’t.”

“It’s easy to talk about your company’s great culture when times are going well,” says Graham. “It’s easy to find money to spend on employee-oriented programs or events. But what happens when the good times slow down, as they have for the economy over the last few quarters? Budgets allocated for maintaining the culture category are many times are the first to feel the pinch when corporate belts are tightened.

“But that’s not the case, I submit, at companies that really value a culture of success. In fact, that is precisely the time when the culture you have built can see you through. A strong culture will help your employees keep their focus on doing outstanding work, despite other issues that may be swirling. This is when employees learn if all the talk about culture is just that.”

In March of this year, Fleishman-Hillard held the latest of its worldwide conferences, bringing more than 2,000 people from around the world together for three days, at a cost that ran into seven figures.

“Given the slow start to the year, I don’t think anyone at the company would have questioned it if we cancelled the meeting this year,” Graham says. “But I believed firmly then—and even more so today—that canceling that meeting would have sent the wrong message. It would have told employees that this meeting, which is really for them, was less important to the company than our short-term goals.”